Contracting will continue to thrive, despite the chancellor’s pick pocketing.
Following George Osborne’s Budget speech there’s been a lot of conjecture and analysis of what the changes will mean for the contracting industry. Now that the dust has settled and the numbers have been crunched, there’s no getting away from the truth of the matter – it’s not good news, despite the excitement of Ian Duncan Smith. However, it’s certainly not all doom and gloom and changes to how contractors are taxed won’t diminish the growing demand for their skills.
With changes to tax credits on dividends, removal of the employment allowance for PSC’s and proposed changes to tax relief on travel and subsistence it does feel like the contracting industry has been placed dead centre of the treasury’s crosshairs. The important thing to note is that while the changes may well affect the amount of money contractors will be able to take home the thriving and crucial contracting sector will still be a key factor in helping the economy continue to grow.
Umbrella Accountants Operations Director Neil Armitage accepts the changes are not good news and points to the dividend changes as the key focus “The removal of tax credits on dividends is the biggest blow meaning the standard remuneration model of a low salary with the rest taken as dividends will be taxed at 7.5% over a new £5,000 allowance rather than the current system of tax credits offsetting any personal tax being payable on dividends up to the basic rate threshold.”
Accountancy Services Manager Helen Johnson FCCA has run the numbers and states that “For a contractor earning dividends right up to the basic rate threshold the difference will be around £1,800 a year or £35 a week. Whilst this is disappointing it should not be seen as triggering a mass exodus from the contracting sector. Rates are growing and with employers being squeezed on attaining an ever escalating living wage for their permanent employees the flexible labour market will continue to go from strength to strength.”
So overall yes it is a blow but it’s definitely not a fatal blow to the industry and the good news is we are all in the same boat. The changes are across the board affecting everyone (other than those that choose the offshore route but those chickens are already coming home to roost and will continue to do so with large tax bills and Advance Payment Notices catching up with almost everyone that thought there was such a thing as a free lunch) so the market will remain competitive and although there will be less money in contractor’s pockets it will remain the best choice for those who are looking for flexibility and freedom along with the higher earnings that a contractor’s career brings with it.
With the changes kicking in from April 2016 we will make sure all of our clients have suitable tax planning procedures in place to ensure maximum tax efficiency during the changes and in the future.
If you’re unsure about any of these changes or have concerns then please get in touch with your accountant who can talk you through the implications and any actions you may need to take but rest assured we will keep all clients fully informed between now and April.